Column-Bonds eye Q4 salvation in another year to forget: McGeever
© Reuters. FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the U.S. Treasury building in Washington, U.S., January 20, 2023. REUTERS/Kevin Lamarque/File PhotoThis is the dilemma many fund managers are facing regarding the bond portion of their portfolio as the final quarter of a potentially historic year for U.S. Treasuries gets underway.
For an investor with a typical portfolio weighted 60% stocks and 40% bonds, these losses are more than offset by double-digit equity returns. Analysts at Truist calculate a 60/40 portfolio using theBut relative to expectations in January, owning bonds this year has been disastrous. Hot on the heels of the worst year ever for Treasuries in 2022 - the ICE BoFA U.S. Treasury Index plunged 13% - this was meant to be 'the year of the bond'.
And the coupon on U.S. Treasuries is now juicy enough to help offset further potential price declines. A 50 basis point rise in the 10-year yield from current levels, for example, equates to around a price fall of around 4%, which is more than covered by the current yield of 4.75%. Analysts at UBS note that yields are well above long-term equilibrium levels, and recommend investors position for a year of double-digit returns from Treasuries ahead as growth slows and inflation continues to fall.
Bank of America's monthly global fund manager survey last December showed that investors' positioning in equities relative to bonds was the lowest since March 2009. Investors were net overweight bonds for the first time since April 2009. And investors expected government bonds to be the best performing asset of 2023.
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